Analysis: Central Bank intervened much too late at ENNIA

WILLEMSTAD — The management of ENNIA has mismanaged the insurance company and might even have committed criminal acts, econometrists Servaas Houben and Ronald Ketellapper state in an analysis published by Dick Drayer on LinkedIn.

Houben works in the insurance industry in Belgium and Ketellapper is a former manager of Guardian Group Fatum in Curacao, where he was responsible for life, pension and healthcare insurances.

Both men reproach the internal supervisor, the board of supervisory directors and the management of the companies of wrongdoing.

“Managers and internal supervisors must be honest and have sufficient expertise,” they say. “The same is true for supervisors whereby the board of supervisory directors must be able to work independently from the management.”

Houben says that all this is properly regulated by law in Curacao but that enforcement of the rules is lacking.

Ketellapper says that proper supervision does not only deal with financial stability but also with behavioral issues. Especially the supervision of behavior has failed in the Ennia-case, Houben and Ketellapper say. “The board of supervisory directors has given in to the shareholder’s pressure to neglect the interests of the policyholders and to enrich the shareholder. The board did not act independently and violated the interest of the policyholders and the entity Ennia Leven.”

Houben adds that the Central Bank intervened much too late, at a moment when the problems were already irreversible.

Prudential supervision sets rules and restrictions for the investments of insurance companies. Investments in companies and real estate must be spread in such a way that a bankruptcy does not annihilate the total value of the investment portfolio.

Ennia violated the investment principles and the risk of concentration, according to Houben.”The investment in Mullet Bay is a far too large component of the investment portfolio. “The supervisor should have come to this conclusion immediately based on the submitted reports.”

Houben and Ketellapper say that the current rules that apply to insurance companies contain too many open standards. This is for instance the case with the projection of investment results and life expectancy.

The Central Bank as the supervisor of insurance companies should work with a zero tolerance policy and demand that companies submit their annual reports in a timely manner.”The Central Bank of Curacao and St. Maarten could look at the Central Bank of Aruba for an example.”

The two econometrists furthermore note that financial institutions should have larger financial reserves based on the risks they are exposed to.

They furthermore mention ownership of the supervisory dossier and stewardship – mandatory communication in case of solvency problems.

Inadequate and inefficient supervision are two significant components of the problems that arose at Ennia but also at the Girobank. These are structural problems that won’t benefit from short term solutions.

Ketellapper notes that Curacao’s largest pension fund APC saw its coverage percentage go down in just one year from 111.5 percent to 103.7 percent. “This can only happen if there is a serious mismatch between investments and liabilities. It indicates shortcomings in risk management.”

Houben and Ketellapper urge supervisors and politics “to come up actively with structural solutions to guarantee the sustainability of Curacao’s financial sector for the long term.

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Related links:
Ennia-case leert: ‘Structurele problemen vergen structurele oplossingen’